China’s Shadow Banking System—Scale, Risks and Regulation: Research from the Perspective of Non-Traditional Credit Financing

Abstract

Shadow banking in China is a popular yet controversial topic worldwide. Reforms are urgently needed as it is a complex system with many levels that involves products, institutions and markets. Shadow banks can be described as financial intermediaries that perform banking functions outside the traditional commercial banking system. Chinese researchers have defined shadow banking under three frameworks: regulation theory, risk theory and non-traditional credit theory. According to our research, shadow banking in China accounts for 19 % of total assets of the banking industry and is worth 27 trillion yuan. Shadow banking has plenty of systemic risks. The intrinsic non-traditional credit expansion mechanism (shadow banking business) of banking in the financial system has been identified as the major cause of the accumulation of systemic risks in finance. Despite its success and rapid development, shadow banking has also exposed the cracks in China’s financial system. The Chinese financial authorities have introduced reforms, but they require significant improvement to provide a comprehensive and stable system.